While the Mittals brothers had run out of options to raise more cash, the financial institutions were facing Rs10,000 crore of bad loans and JSW was keen to wrap up the deal
Three things seem to have sealed Ispat Industries Ltd’s (IILs') fate – firstly, pressure from government agencies, especially the Income Tax department that recently conducted nationwide raids/searches on the company and its promoters. Secondly, lenders are under severe pressure because they would have to declare over Rs 10,000 crore of outstanding borrowings as bad loans if some solution was not found before 31st March. Also, with the loan-for-share scam having badly burned lenders such as Life Insurance Corp of India (LIC) and LIC Housing Finance, even the most sympathetic lenders were scared to bend the rules for the Mittal brothers once again. Finally, IIL was unable to pay salaries and utility bills and it was clear that any delay in selling the plant would have led to vandalization and reduced value.
All this cornered Pramod and Vinod Mittal and created an environment that was ideal for potential acquirers to mount pressure on bankers as well as through political contacts. We learn that even between the two siblings, Vinod Mittal was ready to walk out if he got a good deal.
Good for the Industry
With a large, weak player being taken over by a strong group, the prospects of the steel industry have dramatically brightened, say insiders. Indian steel prices, especially hot rolled coils (HRC), have often quoted below international prices because IIL, perennially short of cash would often sell at a discount to the market prices. Industry now expects prices to move up to market determined levels. One major factor that may turn out to be a worry is that henceforth, the Jindal group along with the Essar group (earlier a major defaulter itself) will now control over 70% of the market for HRC – a product that is used to make consumer durables like cars, washing machines etc.